BANKING AFFAIRS

Detailed explanation-1: -Under this Section, a collecting bank has protection only if the collecting bank, in good faith and without negligence, receives payment of the customer by a cheque, i.e. if there is negligence in receiving of a cheque on behalf of the customer, the collecting bank would be liable for negligence.

Detailed explanation-2: –A banker who has in good faith and without negligence received payment for a customer of a cheque crossed generally or specially to himself shall not, in case the title to the cheque proves defective, incur any liability to the true owner of the cheque by reason only of having received such payment.

Detailed explanation-3: -The NI Act provides protection under Section 131 to the collecting banker in this respect provided the following conditions are satisfied: 1. The protection under the law is available only if he collects a crossed cheque for collection. No protection is available for uncrossed or open cheques.

Detailed explanation-4: -The collecting banker is the one who undertakes the collection of the drafts, bills, pay orders, transfer cheques, etc., on behalf of the customer. The paying banker gets protection under the Negotiable Instrument Act section 85, and the collecting banker gets protection under section 131.

Detailed explanation-5: -The crossing of the cheque secures the payment to a banker. It also traces the person so receiving the amount of cheque. Addition of words ‘Not negotiable’ or ‘Account Payee only’ is necessary to restrain the negotiability of the cheque. The crossing of a cheque ensures security and protection to the holder.